FROM THE OFFICE OF PUBLIC AFFAIRS

I. INTRODUCTION

I appreciate having this opportunity to give youa midpoint review of the Treasury’s study of credit unions.My goal this morning will be to provide some perspective on howwe at the Treasury view this study and how we're carrying it out.Let me emphasize that the study is still a work in progress. Soit would be premature for me to offer conclusions orrecommendations at this point.

I'd like to note at the outset that we at theTreasury did not ask to do this study. Congress included it in abill passed last fall to keep the government running this year.Although we didn't seek this assignment, we take it veryseriously and have been working hard to complete it on time.

Not long after the ink had dried on thelegislation mandating the study, I spoke to the annual meeting ofthe California Credit Union League. I said that a few simpleprinciples would guide our approach. Those principles are verystraightforward, and they bear repeating: Be fair and objective.Be thorough and rigorous. Be open and inclusive. I hope that bythe end of my talk you’ll have a better appreciation of howwe're following those principles.

II. OVERVIEW OF THE STUDY REQUIREMENTS

Let me begin by talking about what Congress hasdirected the Treasury to do.

Section 2606 of the Omnibus Appropriations Actfor 1997 requires the Secretary of the Treasury to conduct astudy of three major topics relating to credit unions. The firsttopic involves the National Credit Union Share Insurance Fund.The second involves the supervision and financial health ofcorporate credit unions. And the third involves the NCUA'sregulations. The study is due September 30, 1997. We're toconduct it in consultation with the NCUA, the FDIC, and theTreasury’s Office of the Comptroller of the Currency, whichregulates national banks.

Let me now take a more specific look at the threetopics I listed a moment ago. The first is the National CreditUnion Share Insurance Fund. Congress has directed us to examinetwo specific issues relating to the Fund. To begin with, we're tostudy whether the 1 percent deposit that credit unions have madeinto the Fund should continue to be treated as an asset on creditunions' books, and thus as part of their equity capital -- orwhether credit unions should, instead, expense it. We're to studywhether the Fund should be administered by someone other than theNCUA, and what would be the implications of such a change. Moregenerally, Congress also directed us to evaluate the NCUA'soversight of the insurance fund.

Second, Congress has required us to evaluate thenation's ten largest corporate credit unions. We're to do this"in cooperation with appropriate employees of other federalagencies with expertise in the examination of federally insuredfinancial institutions." We're to look at corporate creditunions’ investment practices. We're to examine their"financial stability, financial operations, and financialcontrols." And we're to review how the NCUA supervises them.

Third, Congress has instructed us to study theNCUA's regulations. Let me read you the exact language on thispoint. "The Secretary . . . shall conduct a study andevaluation of . . . the regulations of the [National CreditUnion] Administration." Now this language is rather broad.You could conceivably read it as calling for a study of all theNCUA’s regulations, which occupy 250 pages in the Code ofFederal Regulations. But quite a few of these regulations,however appropriate in themselves, have little connection toanything else even touched on in the law calling for the study.To take only a few examples, the NCUA has regulations onadjudicative hearings, advertising, flood insurance, the Freedomof Information Act, group purchasing activities, moneylaundering, pension plan custodians, and suing the government forproperty damage, personal injury, or death. Did Congress reallyintend us to delve into all of them? We think not. Instead, webelieve the best approach is for us to review the regulationsdealing with corporate credit unions, the National Credit UnionShare Insurance Fund, and the safety and soundness of creditunions.

III. PROGRESS TO-DATE

Now let me give you a progress report on howwe've been going about this study.

First, we believe it is important that we gain athorough understanding of the study topics from the perspectiveof credit unions and others interested in the subject. We havemade extensive efforts to meet with, and hear from, creditunions. My staff and I have had dozens of meetings with creditunion CEOs, credit union trade associations, and the NCUA. Wehave visited eight natural-person credit unions and two corporatecredit unions. We have met directly with over thirty credit unionCEOs, representing both large and small credit unions. And wehave met with the CEOs of five corporate credit unions and U.S.Central. These meetings have deepened our understanding of howcredit unions view the Share Insurance Fund, their corporatecredit unions, and NCUA regulations.

Second, since we can't possibly visit witheveryone interested in credit union issues, we published a noticein the Federal Register inviting public comment on thestudy topics. The comment period ended February 28th, and I amquite pleased that we received over 170 comment letters, many ofthem from credit unions and credit union trade associations.

Third, we have had numerous meetings with theNCUA to learn about its operation of the Share Insurance Fund,its oversight of corporate credit unions, and its approach tosafety and soundness regulation. We have paid close attention tothe changes that have been taking place at the NCUA in recentyears. As you know, just last week the NCUA finalized its Part704 regulation, which includes significant changes to theregulation of corporate credit unions. Part 703, which isawaiting finalization, would make significant changes in thesafety and soundness regulations governing natural-person creditunions.

Fourth, as directed by Congress and withassistance from the OCC, we assembled an inter-agency team offederal banking examiners to assist in our review of thefinancial condition of the ten largest corporate credit unions.The six-person team -- with examiners from the OCC, FDIC, OTS,and Federal Reserve -- has been working since mid-January. Aspart of this process, the Association of Corporate Credit Unionsmade a detailed presentation to the Treasury’s credit unionteam and to the inter-agency examination team. The examinationteam has had numerous meetings with NCUA officials and hasconducted on-site reviews of both U.S. Central and Wescorp.

In short, the Treasury has invested significanttime and resources to learning more about credit unions. We haveapproached this study with open minds, open ears, and an opendoor. But we're still in the process of learning. We aren'trushing to conclusions as we do our work.

IV. MORE TO DO

While we have accomplished a lot in the fivemonths since Congress gave us this assignment, we have much moreto do. First, we received most of the response letters to our FederalRegister notice at the end of February. As I said, wereceived more than 170 letters and we will review each of themcarefully.

Second, as we have met with the NCUA, creditunion trade associations, credit unions, and other interestedparties, we have accumulated a significant amount ofinformational materials. We're in the process now of going backover these materials to ensure that we consider all of the facts,data, and viewpoints presented there.

While there is much left for us to do, I ampleased at this point that we appear to be on target for gettingour work done on time.

V. A WORD ON FIELD OF MEMBERSHIP

Before concluding my remarks, let me say a fewwords about the field of membership issue, which is of greatinterest to credit unions. This issue is not part of our studymandate.

I would note that this is an importantlegislative issue. NAFCU and CUNA are working together to fashiona legislative solution, as are others associated with creditunions. This issue is of direct policy concern to the Treasury aswell, and one that we are following carefully.

Since we already had a team in place studyingcredit unions, it only makes sense that this team has also beenasking people about the field of membership issue. We continue tofollow this issue closely, and are considering all the elementsinvolved. But we haven't taken any position thus far.

VI. CONCLUSION

I would like to close now by making threeobservations.

First, credit unions appear to be doing verywell. Loan-to-share ratios are at record levels. And the ShareInsurance Fund has experienced no losses in the past couple ofyears.

Second, in our discussions with credit unionrepresentatives, we have been quite impressed with theirdedication to serving members’ financial service needs.

Third, credit unions have been, and remain, animportant and unique component of our financial services system.

One might ask what we expect to accomplish withour study. It’s a fair question. I think there are two waysof looking at it. On the one hand, we expect to fulfill ourCongressional mandate, to consider the study topics and to makerecommendations to Congress as appropriate.

But, in addition, I would note that I have alwaysbeen impressed with the credit union principle of pursuingself-audit and renewal. Indeed, there’s a strikingexpression of this in the World Federation of Credit Unions'"Statement of Credit Union Operating Principles". Thisstatement calls for all credit unions to pursue self-audit andrenewal. It says: "Credit union management and staff shouldregularly ask the question, `How have we acted like (or unlike) acredit union today?'"

I hope that the interactions between the Treasuryand credit unions aids in that process of self-audit and renewal.I also hope that our study, once completed, is useful to you asyou seek to realize your fundamental objective -- serving yourmembers.

Thank you for the opportunity to speak heretoday.